Question

Fix, Inc., an exempt organization, owns a one-story building. Fix’s adjusted basis for the building is $900,000. Of the building’s total area of 10,000 square feet, the front portion (approximately 3,000 square feet) is used in carrying out Fix’s exempt purpose. The remainder of the building is leased to Belts, Inc., a taxable entity, for $300,000 each year. Belt uses the space to store its inventory.
The unamortized balance of a mortgage relating to the original acquisition of the building by Fix is $600,000. Determine the portion of the building’s adjusted basis that is treated as debt-financed property and the amount of the mortgage that is acquisition indebtedness.